BAPCPA’s Biggest Blunders

The misnamed Bankruptcy Abuse Protection and Consumer Protection Act (“BAPCPA”) is poorly drafted, badly written and internally inconsistent. This article will highlight some of the more obvious writing and reference errors in this deeply flawed law. All Code references are to 11 U.S.C. unless otherwise noted.

The Involuntary Credit Counseling Conundrum. As discussed in more detail in my article, Involuntary Bankruptcy and the Credit Counseling Conundrum, Section 303(a) of the Code (unchanged from pre-BAPCPA) states: “An involuntary case may be commenced only under Chapter 7 or 11 of this title, and only against a person…that may be a debtor under the chapter under which such case is commenced.” (Emphasis added.) BAPCPA added new explicit requirements for being an individual debtor in § 109(h): “[A]n individual may not be a debtor under this title unless such individual has, during the 180-day period preceding the date of filing of the petition by such individual, received from an approved nonprofit budget and credit counseling agency…credit counseling…” (Emphasis added.)

In other words, if the proposed involuntary debtor does not first take a pre-petition credit counseling course, he or she cannot be a debtor…and thereby cannot have an involuntary petition filed against them!

How Many Motions and Hearings Are Necessary? § 362(c)(3)(B) says that, “[U]pon notice and a hearing, the court may extend the stay…after notice and a hearing completed before the expiration of the 30-day period.” Does that require one or two notices, and one or two hearings? Some Districts have local rules that say if no one objects, no hearing at all is held, and the stay is extended anyway. Is this allowed?

How Much Process is Due? In the words of Prof. Kenneth Klee of UCLA, § 342(g) is a statutory attempt to define due process. It’s a pretty poor attempt. “Notice provided to a creditor…shall not be effective notice until such notice is brought to the attention of such creditor.” What does the phrase “brought to the attention of” mean? First class mail? Is second class mail sufficient? Email? A phone call? Smoke signals? Banner across the street?

Judge Lundin suggests that if a company of 280,000 employee designates one person to be the recipient of bankruptcy notice and you notice all 279,999 other employees, you do not have sufficient notice, unless one of the 279,999 relays the notice to the designated person. And that still leaves the question: Does the relay constitute ‘brought to the attention of?” This phrase is nowhere to be found in SCOTUS’ cases like Mullane, Sniadach, Fuentes and others that deal with due process. If I do not know the designated person, do I have to notify all 280,000 in order to bring it to the attention of the designated person? (Thanks to Jonathan Becker for this.)

Credit Counseling Insults. As discussed in more detail in my article, “Why I Hate Credit Counseling,” what purpose is served in having a Ph.D. in finance who has to file for bankruptcy take a credit counseling class? Do we really think they’ll learn something? If Donald Trump has to file, he’ll have to take the same course as everyone else; does this make sense?

Why should someone who has to file because of illness and medical bills have to take a credit counseling class? After all, the cause of the filing wasn’t poor financial management, it was a family member getting sick and lots of unexpected medical bills (and possibly lost wages as well). Ditto someone whose spouse left, or someone who lost their job. Blaming the victim for financial problems that aren’t of their doing by requiring credit counseling (and making them pay for it) just seems cruel.

The Infamous Hanging Paragraph. Most statutes have section headings to let you know how to properly refer to them. For example, although a citation to § 362(c)(3)(C)(i)(II) is rather clunky, at least it lets everyone know what portion of the Bankruptcy Code you’re talking about. Section 1325 is different. It has a paragraph that Congress just decided not to number, and thus there’s no real way to refer to it. [It’s the paragraph immediately after § 1325(a)(9).] Most lawyers and judges call it the “hanging paragraph,” but no one’s really figured out a good way to reference it. One I’ve seen is to refer to it as “§ 1325(a)(*),” which probably is as good as anything. (Thanks to Elaine Dowling for mentioning this section.)

Lack of Definitions. There are lots of new terms under BAPCPA. There are also lots of new terms under BAPCPA that are not defined in the Code. These are important terms, and the lack of definitions can really cause some headaches, not to mention litigation. (I’m currently involved in a case on appeal to the U.S. Court of Appeals for the Fourth Circuit involving the question of what the word “filed” means in § 1328(f)). (Section numbers indicate where the term is used): “Household [§ 707(b)(6)].” “Good Faith [§ 109(b)(5)(B)].” “Material Misstatement [§ 727(d)(4)(A)].” “Inquiry [§ 527(a)(2)(c)].” “Notice.” “Filed [§ 1328(f)].” “Certification (which appears 26 times in the Code).” “Constituent Creditors [§ 1102(b)(3)(B)].”

Have some more that drive you nuts? Let me know and I’ll add them to the list (and give you credit).